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Risk premia in the German electricity futures market

Author

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  • Pietz, Matthäus
Abstract
The mechanism behind price formation in electricity futures markets is still under discussion. Theory suggests that hedging pressure caused by deviating risk preferences is the most promising approach. This paper contributes to this discussion through an empirical investigation of electricity futures for delivery in Germany traded at the European Energy Exchange (EEX). We analyse the futures prices from an ex post perspective and show that there is evidence for significant positive risk premia at the short-end. Furthermore, we find that risk premia show a term structure. Evidence for the existence of seasonality in the risk premia is found as well. When testing for factors influencing the risk premia the results suggest that risk premia are directly related to factors linked to risk considerations.

Suggested Citation

  • Pietz, Matthäus, 2009. "Risk premia in the German electricity futures market," CEFS Working Paper Series 2009-07, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    • Handle: RePEc:zbw:cefswp:200907
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. João Estevão & Clara Raposo & José Dias Lopes, 2018. "The Paris Agreement and electricity markets outside the EU," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 12(4), December.
    2. repec:zbw:iamodp:169081 is not listed on IDEAS
    3. Prehn, Sören & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2014. "The impact of long-only index funds on price discovery and market performance in agricultural futures markets," IAMO Discussion Papers 169081, Institute of Agricultural Development in Transition Economies (IAMO).
    4. Mara Madaleno & Carlos Pinho, 2010. "Hedging Performance and Multiscale Relationships in the German Electricity Spot and Futures Markets," JRFM, MDPI, vol. 3(1), pages 1-37, December.
    5. Pietz, Matthäus, 2009. "Risk premia in electricity wholesale spot markets: empirical evidence from Germany," CEFS Working Paper Series 2009-11, Technische Universität München (TUM), Center for Entrepreneurial and Financial Studies (CEFS).
    6. Bonaldo, Cinzia & Caporin, Massimiliano & Fontini, Fulvio, 2022. "The relationship between day-ahead and future prices in electricity markets: An empirical analysis on Italy, France, Germany, and Switzerland," Energy Economics, Elsevier, vol. 110(C).
    7. Prehn, S. & Glauben, T. & Loy, J.-P. & Pies, I. & Will, M.G., 2015. "Der Einfluss von long-only-Indexfonds auf die Preisbildung und das Marktergebnis an landwirtschaftlichen Warenterminmärkten," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 50, March.
    8. Jenny Winkler & Rouven Emmerich & Mario Ragwitz & Benjamin Pfluger & Christian Senft, 2017. "Beyond the day-ahead market – effects of revenue maximisation of the marketing of renewables on electricity markets," Energy & Environment, , vol. 28(1-2), pages 110-144, March.
    9. Michal Michalovský & Igor Paholok, 2011. "Portfolio Theory and Electricity Forward Markets," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2011(1), pages 76-103.
    10. Nikola Krečar & Andrej F. Gubina, 2020. "Risk mitigation in the electricity market driven by new renewable energy sources," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 9(1), January.
    11. George Daskalakis, Lazaros Symeonidis, Raphael N. Markellos, 2015. "Electricity futures prices in an emissions constrained economy: Evidence from European power markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    12. Sousa, Joana & Soares, Isabel, 2020. "Demand response, market design and risk: A literature review," Utilities Policy, Elsevier, vol. 66(C).
    13. Prehn, Soren & Glauben, Thomas & Loy, Jens-Peter & Pies, Ingo & Will, Matthias Georg, 2014. "Der Einfluss Von Long-Only-Indexfonds Auf Die Preisbildung Und Das Marktergebnis An Warenterminmärkten," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187363, German Association of Agricultural Economists (GEWISOLA).
    14. Estevão, João & Raposo, Clara, 2018. "The impact of the 2030 Climate and Energy Framework Agreement on electricity prices in MIBEL: A mixed-methods approach," Journal of Business Research, Elsevier, vol. 89(C), pages 411-417.
    15. repec:zbw:iamodp:161078 is not listed on IDEAS

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    More about this item

    Keywords

    Electricity; Electricity Market; Forward Market; Futures Market; Risk Premia; Risk Premium; Realised Risk Premia; Ex post Risk Premia;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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